Core ideas:
2020/2H20 's financial report turned from loss to profit. Razer released last year's financial results on March 24. 2H20's annual adjusted net profit was US $43 million, which turned into a profit compared with 1H20's net loss of 9 million, due to increased market share of hardware products and strong growth in its high-margin services business. However, the computer business was affected by the supply crunch and the gross profit margin fell. The company says it will maintain high revenue growth for 21 years while hardware profit margins will continue to improve. In addition, the company's current net cash level is about US $6 million, which will be used for the stock buyback plan and the M & An opportunities in e-sports 's ecological play.
The growth of the gaming industry has not yet peaked. Under the influence of the epidemic, the game industry has experienced rapid growth in the past 20 years, and we believe that it will continue to grow in 21 years because: (1) at the results meeting on March 24, the company said to observe the activities of its 123 million registered users worldwide. Game time has not decreased because of the slowing down of the epidemic. In addition, the number of new gamers continues to increase, and there is still room for growth in the potential market. (2) the two new-generation game consoles, PlayStation 5 and XBOX Series X, are on the market at the end of the 20th, and this year is expected to usher in a strong wave of peripheral product upgrades. In the long run, cloud game peripherals, live streaming devices (cameras, microphones) and other product lines (such as e-sports chairs) are the momentum for future growth.
Service business continues to benefit from the take-off of e-commerce in Southeast Asia. The impact of the epidemic on normal life has led to the rapid development of e-commerce. In the past 20 years, the total payment transaction size (TPV) of the company has increased by 102% year on year to US $4.28 billion, and the number of online plus offline channel contact points has increased by 1.6 million to 5 million. We are optimistic that Razer's positive layout of e-commerce in Southeast Asia will begin to enter the harvest period, and we expect that the service business with higher gross profit margin will help to improve the overall profit margin.
Maintain a "buy" rating with a fair value of HK $3.06 per share. It is estimated that the revenue in 22nd year will be US $1.43 billion respectively, while the profit margin will remain stable, and the adjusted net profit will be US $77,142 million. Using the DCF valuation method, the reasonable value is HK $3.06per share. The fair value corresponds to 2.1 times the 21-year market-to-sale rate (EV/Sales), which is lower than the 21-year valuation of Logitech, the leading peripheral equipment, and maintains a "buy" rating.
Risk hint. The growth of the game industry is slowing, profit margins are lower than expected, and service business is not as good as expected.